News & INSIGHTS

Few companies offer pensions these days, but many of the ones who do give their employees the choice of taking the pension as a lifetime income stream or a one-time lump sum that can be moved into an IRA (or a combination of both).

As you might imagine, wealth advisors often assist with designing a financial plan to help meet client cash flow needs, risk tolerances, and retirement goals. Even though a well-thought-out financial plan can create a clear roadmap for success, not everyone is open to specific ideas to maximize outcomes.

In many cases, receiving a set dollar amount every month creates peace of mind. A paycheck-like income stream, similar to when you were working as an employee, creates comfort because that is what you might have been used to for 30+ years. But unlike working years, where salaries and bonuses could increase each year with promotions and inflation adjustments, a pension typically does not have a cost-of-living increase. The dollar amount is fixed for the course of your life. This can lead to buying power being eaten away by inflation and other external forces.

On the contrary, a lump sum payment into an IRA gives the account owner flexibility of future cash flow, albeit less certainty. This is not an argument to always take the lump sum, but just some food for thought. An IRA can be invested as aggressively or conservatively as the account holder wants. This can create sufficient growth to maintain cash flow for spending and is a great way to combat inflation.

Another option is blending the two options. Although we are not always big proponents of annuities, they do have their place when it makes sense. What can be a happy medium to the guaranteed yet stagnant monthly payment of a pension and the volatility of a mix of stocks and bonds is an annuity. If you were to take a lump sum payment and then use a portion of the rollover to purchase an income annuity that creates a lifetime stream of income WITH the opportunity for the income to grow each year, that could be a win-win scenario.

This is NOT a pitch to buy an annuity. But this is a point about being open-minded.

As mentioned earlier, there is no one-size-fits-all financial plan, but it is wise to be open to non-traditional options if it makes sense for your financial future.

This is for informational purposes only and does not constitute an offer to sell or the solicitation of an offer to purchase any security or investment product or services. The content is provided solely for your personal use and shall not be deemed to provide access to any particular transaction or investment opportunity. Amplius Wealth Advisors, LLC does not intend the information to be investment advice, and the information should not be relied upon to make an investment decision. Any third-party information contained herein was prepared by sources deemed to be reliable but is not guaranteed.